On November 19, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated two entities operating in Russia determined to be involved in the exportation of forced labor from North Korea, under the authority of Executive Order (E.O.) 13722 of March 15, 2016, “Blocking Property of the Government of North Korea and the Workers’ Party of Korea, and Prohibiting Certain Transactions With Respect to North Korea.” The two sanctioned entities are: Mokran LLC, a Russian construction company, and Korea Cholsan General Trading Corporation, a North Korean company operating in Russia.
This action follows a similar action OFAC took in January of this year, when it designated two entities pursuant to the same authority: (1) Namgang Trading Corporation (NTC), a North Korean trading corporation which OFAC determined to be involved in the logistics process of exporting workers, including handling North Korean personnel’s visas, passports, departures, overseas employment, and repatriation of funds; and (2) Beijing Sukbakso, a China-based North Korean lodging facility that facilitates the Government of North Korea’s practice of sending laborers abroad.
These two actions are in furtherance of the enforcement of UN Security Council Resolutions 2375 and 2397. These resolutions, passed by the UN in 2017 in response to Pyongyang’s launch of an intercontinental ballistic missile, required Member States to revoke work authorizations and return all North Korean laborers by December 22, 2019.
Regarding the November 19 action, Treasury Secretary Steven T. Mnuchin stated in the press release: “North Korea has a long history of exploiting its citizens by sending them to distant countries to work in grueling conditions in order to financially support Pyongyang and its weapons programs. Those countries still hosting North Korean workers must send these workers home.”
OFAC’s action require those with operations in Russia, or with Russian parties in their supply chains, to evaluate the risk of the presence of North Korean labor. Products made with North Korean labor are presumptively considered made with forced labor and are prohibited from entering the United States. U.S. Customs and Border Protection (CBP) will exclude merchandise it suspects of being made with forced labor, (see CAATSA Title III Section 321(b) FAQs Homeland Security (dhs.gov)). The presence of these two entities in Russia increases the need for due diligence in Russia generally, should other sources of North Korean labor be present (the prohibitions are not limited to named sources only).
U.S. persons that operate or are otherwise involved in transactions related (directly or indirectly) to the Russian construction sector should urgently conduct the appropriate due diligence based upon their internal business risk assessment to ensure the designation of the Russian construction firm Mokran LLC does not otherwise implicate their activities.
Non-U.S. persons should confirm their transactions (whether directly or indirectly) are clear of these entities if there are U.S. touchpoints of exposure to avoid sanctions implications and possibly business interruptions (i.e. banks hesitant to process transactions and rejecting payments).
Foreign Financial Institutions (FFIs), likewise, risk secondary sanctions exposure if they facilitate payments for the designated entities that OFAC might consider as “knowingly conducted or facilitated any significant financial transaction.” FFIs considering engaging in activity with or on behalf of the designated entities will therefore need to consider what activity might be considered “significant” by OFAC and assess the business risk accordingly.
This action, however, should not be viewed in a vacuum and instead be seen as part of a broader policy goal of this Administration – to raise awareness of forced labor in global supply chains, not just in Russia. These actions follow an interagency business advisory on North Korea Sanctions & Enforcement Actions, Risks for Businesses with Supply Chain Links to North Korea, published in July 2018 by OFAC and U.S. Customs and Border Protection (CBP).